Ripple is designed to facilitate currency exchange and a distributed Real Time Gross settlement system. The genesis of Ripple can be traced back to 2004 when Ryan Fugger, a web developer, created a platform that would allow its users to create a monetary system that was decentralised. Unlike Bitcoin, Ripplepay would validate its transactions via consensus amongst the members in the network as opposed to Bitcoin which relied heavily on Blockchain technology. Control over the platform was handed over to Chris Larsen and Jed McCaleb. The team proceeded to form OpenCoin in 2012. It was here they developed a new payment protocol known as XRP Ledger Protocol. The protocol enabled the virtually instant and direct transfer of money between two parties. What separated the platform from traditional banking models and money transfer services was the sheer speed it operated at and the effect this would have on the cost of the transaction.
The currency of The Ripple network is XRP. At the beginning of the platform there were 100 billion XRP. This amount is fixed and it is stated in the protocol that no more is allowed to be created. One unique feature about XRP is how it functions as a bridge currency. What this means for the user is that in the event that a direct exchange between two currencies is not possible the platform will make use of XRP to facilitate this. An example of this bridging can be seen via their bitcoin bridge which allows a bitcoin user to be paid directly even though the other party does not hold any bitcoin. Further, XRP has amazing transaction capacity. With it being speculated it can process 1500 transactions a second. The platform makes use of gateways. These are any person or company that allows users to put in and take out money from the Ripple liquidity pool. A gateway is very similar to how banks operate at their most basic level. Users can withdraw or deposit money and this transaction will reflect on their account balance which is stored on the Ripple distributed ledger. Probably due to the influence of Bitcoin on the cryptocurrency world, there exists an expectation that a “good” cryptocurrency will keep your identity anonymous. On this platform however, it is typical for gateways to adopt a know you customer policy with the purpose of being able to identify their clients to mitigate issues such as money laundering or the financing of terrorism.
XRP makes use of a shared ledger which is stored on a database managed and hosted by a network of servers that always communicate with each other about their transaction records. Transactions are “any proposed change to the ledger and can be introduced by any server to the network.” After consensus is reached between the servers, the ledger is closed. Ledgers are created and closed every few seconds on the platform. The most recently closed ledger is an accurate record of all the XRP ledger accounts as determined by the network servers. The consensus process works via a supermajority. Transactions that are agreed upon by a supermajority of peers on the network are the ones that are validated. Where a supermajority fails, either due to high transaction or volume or other reasons, the process of consensus is restarted until supermajority is achieved.
There exist key differences between XRP and Bitcoin. As mentioned earlier, Bitcoin is a digital currency capable of replacing traditional currency models. XRP on the other hand has a primary focus of facilitating movement of currency more efficiently than traditional forms of banking/money transfer. XRP has the advantage of being faster with transactions on its platform as compared to Bitcoin. For example, a trade consisting of different currencies can be processed in 3-5 seconds. Ripple as a platform seems more capable of adjusting to any regulatory pressures the cryptocurrency market may face from local governments. The platform is already aligned with many established financial institutions and has shown a willingness in past instances to adjust to the demands of regulatory bodies.
Published on: Aug 15, 2018
Author: Bob Grace
